kansallis v. fern, 1st cir. (1994)

7/26/2019 Kansallis v. Fern, 1st Cir. (1994)

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USCA1 Opinion

UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT ____________________

No. 93-2381

KANSALLIS FINANCE LTD.,

Plaintiff, Appellant,

v.

DANIEL J. FERN, ET AL.,

Defendants, Appellees.

____________________

No. 94-1010


Plaintiff, Appellee,

v.


Defendants, Appellants.

____________________

APPEALS FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. D. Brock Hornby, U.S. District Judge*] ___________________

____________________

Before


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Selya, Circuit Judge, _____________ Coffin, Senior Circuit Judge, ____________________ and Stahl, Circuit Judge. _____________

____________________

* Of the District of Maine, sitting by designation.

____________________

James W. Murphy with whom Frederic L. Ellis was on br________________ __________________

Kansallis Finance Ltd. Eric Lund with whom Susan R. Riedel was on brief for Dan

_________ ________________ Fern, et al.

____________________

November 2, 1994 ____________________


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COFFIN, Senior Circuit Judge. Plaintiff Kansallis Fin _____________________

Ltd. ("Kansallis") brought this diversity suit against

lawyers, asserting that they were vicariously liable for f

committed by their purported law partner. A jury trial resu


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in judgment for the defendants, Daniel Fern, Richard Ander

Robert Donahue and Charles Sabatt. Both plaintiff and defen

now appeal, raising challenges to the sufficiency of the evi

to support various fact-findings, as well as two questions

Massachusetts law on which there is either conflicting or

clearly established precedent. We uphold the factual fin

and certify the legal questions to the Massachusetts Sup

Judicial Court ("SJC").

Background __________

This lawsuit stems from a loan and lease finan

transaction whose precise details are not relevant to any of

issues on appeal. What is important is that, in advance

consummating the loan, Kansallis sought and obtained an opi

letter from defendants' purported law partner, Stephen Jo

which was issued on letterhead captioned "Fern, Ander

Donahue, Jones & Sabatt, P.A." The letter contained se

intentional misrepresentations concerning the transaction an

part of a conspiracy by Jones and others (though not any of

defendants here) to defraud Kansallis. Jones was l

criminally convicted for his part in the conspiracy, in

Kansallis lost more than $880,000. Unable to collect from

or any of the loan's guarantors, Kansallis sought compensa

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from defendants on the theory that they and Jones were ei

actual partners or partners by estoppel, and that they

liable for the fraudulent opinion letter Jones caused to

issued on the firm stationery.1

The case went to trial. Both the judge and jury found

Jones and the defendants were partners at the relevant ti

but, for different reasons, they concluded that defendants

not liable for Jones's conduct. The jury's verdict was base

its findings that Jones did not have authority to issue

opinion letter on behalf of the partnership, and that

issuance of the opinion letter was not within the scope of

partnership. The district court made independent findin

fact on plaintiff's claim under a Massachusetts cons

protection statute, Mass. Gen. L. ch. 93A. Unlike the jury,

found that the partnership had clothed Jones with appa ___

authority to issue the letter on its behalf. Nonetheless,

court went on to hold, as a matter of law, that "innoc

partners may not be held vicariously liable under 93A for t

partners' fraudulent acts. In other words, the court held t

partner, entirely unaware and uninvolved with another partn

fraud, is immune from vicarious liability under 93A, even

____________________

1 Jones did not personally sign the letter, but ins


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arranged for a third party to do so. Both the jury anddistrict court found that, by this conduct, Jones adopteratified the issuance of the opinion letter. Since no partyappealed these findings, we take them as given.

2 The district court also found that, even if theynot actual partners, they were partners by estoppel.

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the conduct constituting the fraud was authorized. The c

also found that the conduct giving rise to the 93A claim a

"substantially in Massachusetts," thus making it subject to

statute. See Mass. Gen. L. ch. 93A, 11.___

On appeal, each side challenges the factual findings ad

to its position. Kansallis also asserts two legal err

First, it finds error in the court's ruling that vicar

liability cannot attach to "innocent" partners in a 93A cl

Instead, based on the court's fact-finding that the letter

issued with the firm's apparent authority, Kansallis asserts

normal principles of vicarious liability as among partners s

apply to make defendants liable for Jones's fraud. Secon

argues that the jury's finding that the letter was not issue

the ordinary course of the partnership was made only upo

erroneous jury instruction. Specifically, Kansallis submits


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it was error to charge the jury that, for the letter to have

issued in the course of the partnership, Jones must have

motivated at least in part by the intent to serve

partnership. It argues that, while such motivation is requ

in an employer-employee context, no such requirement is pre

here.

Discussion __________

We first review the evidence to support the various f

findings. Because we affirm these findings, we are f

squarely with the two legal issues raised by Kansallis. Fin

no clearly established precedent on one of the questions,

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conflicting precedent on the other, we certify both to the

pursuant to its Rule 1:03.

I. Sufficiency of the Evidence to Support the Fact-Fin _______________________________________________________

Defendants argue that it was error for both the jury an

judge to find that they were Jones's partners. They also su

that it was error for the judge to find that the partnership

granted Jones apparent authority to cause the letter to be is


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on its behalf. Finally, they find error in the ju

determination that the conduct giving rise to the 93A c

occurred primarily and substantially within Massachuse

Plaintiff, for its part, asserts that it was error for the

to decide that defendants had not granted authority to Jone___

issue the opinion letter. We find no merit in any of t

contentions.

A. Partnership ___________

Under Massachusetts law, a partnership "is an associatio

two or more persons to carry on as co-owners a business

profit." Mass. Gen. L. ch. 108A, 6. See also Loft v. Lapi ___ ____ ____ ___

936 F.2d 633, 636 (1st Cir. 1991). Several factors

considered to determine if a partnership exists. A

exhaustive list includes: whether there is "(1) an agreemen

the parties manifesting their intention to associate i

partnership (2) a sharing by the parties of profits and los

and (3) participation by the parties in the control or manage

of the enterprise." Fenton v. Bryan, 33 Mass. App. Ct. 688,______ _____

604 N.E.2d 56, 58 (1992). See also Mass. Gen. L. ch. 108A,___ ____

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(providing additional rules for determining the existence

partnership). While a partnership undoubtedly requires

agreement among the partners, that agreement need not be

writing. Rather, intent to carry on business as partners ma

inferred from the partners' words and acts. Loft, 936 F.2____

636-37.

We uphold the fact-findings below on the existence

partnership unless that determination was clearly erroneous,

at 636, a standard that requires "'the definite and

conviction that a mistake has been committed,'" American T _________

Ins. Co. v. East West Financial, 16 F.3d 449, 453 (1st Cir. 1 ________ ___________________

(quoting United States v. United States Gypsum Co., 333 U.S._____________ ________________________

395 (1948)).

The evidence adduced at trial was sufficient to support

finding that defendants and Jones were indeed law partners at

time the fraudulent opinion letter was issued. It

uncontroverted that Daniel Fern and Richard Anderson became

partners in the early 1960s and that Robert Donahue and Ste

Jones joined that partnership in the 1970s. Defendants main

that, while Sabatt joined the firm in the early 1980s, he di

as an employee only. They also submit that the partner

dissolved in 1981 and, while all four defendants and


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continued to share office space, secretarial servi

letterhead, a central card file of clients, and so forth,

did so as a professional association of individual practitio

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only, laying much emphasis on the fact that their letterhead

the denomination "P.A." after listing their names.

The jury and district court were entitled to discredit

defense. The record shows that Fern, Anderson, Donahue, Jon

Sabatt filed partnership tax returns for several years past 1

the year the partnership allegedly dissolved, and that

partner's share of profits was calculated in the same manne

1980, when the firm was admittedly a partnership, as it was

several years thereafter. Receipt of a share of profits i

business is itself prima facie evidence of a partnership.

Mass. Gen. L. ch. 108A, 7(4). In addition to the indicia

partnership already described, the firm's internal le

referred to itself as a partnership, the phone at the "s

office space" was answered in the name of the firm,

defendants advertised themselves as a firm in both the phone


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and the lawyer's directory Martindale-Hubbell, held accou __________________

investments and insurance in the name of the firm, and ren

their lease in the name of the firm -- specifically descri

themselves as a partnership.3 Though they offer explanat

____________________

3 The original lease was made in 1974, when Sabattnot yet joined the firm, in the name of "Fern, Anderson, Don

& Jones, a partnership consisting of Daniel J. Fern, RicharAnderson, Robert J. Donahue and Stephen C. Jones." When therenewed its lease in 1983, it did not advise the landlordthe partnership had "dissolved" or that Sabatt had been na

partner. We also note that Jones and defendants Fern, Ande and Donahue were co-owners of certain accounts without defen Sabatt. Thus, the renewed lease, as well as those accounts

which Sabatt was not listed as a co-owner, only bolsterfinding of partnership as between Jones and defendantsAnderson and Donahue. Nonetheless, the totality of o

evidence is sufficient to support the finding by both the j

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for these circumstances consistent with the absence o

partnership, it was not clear error to come to the conclu

that defendants were law partners at the time the opinion le

was issued.

B. Authority _________

Both parties urge us to overturn the findings below rel


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to authority: defendants argue that the evidence was insuffic

to support the district court's finding that there was autho

to issue the letter, while plaintiff asserts that, based on

evidence, it was error for the jury to find that there was

authority. Despite the apparent incongruity of diffe

conclusions by the jury and judge on this question, we hold

neither one is clearly erroneous. While the evidence was st

enough to permit a finding of apparent authority, it was not______

overwhelming as to require one.

_______

Massachusetts law recognizes apparent authority where

"conduct by the principal . . . causes a third person reasonably to believe that a particular person . . . has authority to enter into negotiations or to make representations as his agent." If a third person goes on to change his position in reliance on this reasonable belief, the principal is estopped from denying that the agency is authorized.

Hudson v. Massachusetts Property Ins. Underwriting Ass'n,______ _________________________________________________

Mass. 450, 457, 436 N.E.2d 155, 159 (1982) (quoting W.A. Sea

Agency 8D, at 13 (1964)) (citations omitted); accord Putna______ ____

DeRosa, 963 F.2d 480, 484 (1st Cir. 1992). Whether appa

______

authority exists is a question of fact. Consolidated Rail C __________________

____________________

and jury that Sabatt was also a member of the partnership.

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v. Hallamore Motor Trans., Inc., 394 Mass. 56, 59 n.2, 473 N. ____________________________

1137, 1139 n.2 (1985). We thus affirm unless there has

clear error. Fed. R. Civ. P. 52(a); American Title Ins. Co.______________________

F.3d at 453.

As indicated, the district judge, making findings of

independently of the jury on the cause of action under 93A, f

that Jones did have apparent authority to issue the opi

letter on behalf of the partnership, and that Kansallis cha

its position in reasonable reliance on that authority. Ther

sufficient evidence in the record to support this conclusion.

general, defendants manifested to the world signs that c

reasonably lead third parties to believe they were a

partnership, each authorized to act and speak on behalf of

firm: their shared letterhead, offices, and office support st

their common office signs and joint listings in telep

directories and Martindale-Hubbell. But more specifica __________________

defendants manifested to Kansallis a relationship with Jones

led Kansallis to believe Jones was authorized to issue the le

on behalf of the partnership: they caused their phone t

answered in the firm's name, thus making reasonable the infer

that Kansallis's lawyer's phone calls to Jones were answere


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the firm's name; they allowed Jones unrestricted use of the

stationery; and they erected no general limitations or clear

procedures for the issuance of legal opinion letters on

stationery. By doing so, they encouraged Kansallis to bel

that the firm, and not just Jones, stood behind the opi

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letter. Whether they had done enough to make Kansallis's be

reasonable is a question that is "uniquely within the compete

of the fact finder. Devaux v. American Home Assurance Co.,______ ___________________________

Mass. 814, 819, 444 N.E.2d 355, 358 (1983). There is no c

error in the judge's decision that it was reasonable.

Likewise, there is no clear error in the jury's cont

conclusion. The opinion letter was not signed by any of

named partners, nor in the name of the firm, as is customa

the practice for legal opinion letters. Rather, it was signe

an individual who turned out to be an employee of Iyan

Management Co., a company of which Jones was a principal

which Jones used to facilitate the fraud. The Iyan

employee's name nowhere appeared on the law firm's letter

Indeed, Kansallis's New York lawyer, who dealt directly


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Jones in the transaction, specifically asked him to re

language in the letter so that the crucial representat

concerning the transaction were made by the collective "we

ostensibly the firm -- and not the individual "I."4 T

whether the letter spoke on behalf of the firm already wa

important concern to Kansallis's lawyer, and the jury was wi

its purview to decide that she should have obtained fur

assurances before concluding that it did. Under t

____________________

4 It is only the conduct of the principal, and notconduct of the agent, that may create apparent author

Sheinkopf v. Stone, 927 F.2d 1259, 1269 (1st Cir. 1991). T _________ _____ the fact that Jones made this change in language,

undoubtedly heightened Kansallis's belief that the firm s behind the letter, does not help Kansallis show appa authority.

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circumstances, the jury's finding that Jones was not author

to issue the letter on the firm's behalf was not cle

erroneous.

C. Whether the 93A Claim Arose Substantially and Primaril_______________________________________________________

Massachusetts _____________


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Appellees assert that the district court erred in conclu

that the conduct giving rise to the 93A claim occurred prima

and substantially within Massachusetts, thus making the con

subject to the statute under Mass. Gen. L. ch. 93A, 11.

rely on the facts that the opinion letter was drafte

Kansallis's lawyers in New York and that a central element of

conspiracy -- making fraudulent U.C.C. filings -- occurre

Maine. Notwithstanding these facts, the partnership existe

Massachusetts and the crucial letter that formed the basis

the entire cause of action by linking defendants to Jon

liable conduct was executed there. Further, the fraud culmin

there because Kansallis disbursed the "loan money" to Jones

others in Massachusetts. Finally, we note that 11 provides

exemption from 93A liability, available as a defense, rather

a jurisdictional prerequisite to suit, and thus defendants

the burden of proving a lack of primary and substan

involvement in Massachusetts. See ch. 93A, 11 ( ___

paragraph). There is no clear error here.

II. Legal Issues ____________

Kansallis's legal challenges are not so easily resolved.

argues that the district court erroneously concluded that,

cause of action pursuant to 93A, general principles of vicar

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liability5 are inapplicable to "innocent partners," i.e., t

who were entirely unaware and uninvolved with their partn

actionable conduct, even if such conduct was authorized. We

found no controlling Massachusetts precedent on this issue,

is determinative of the 93A claim. We therefore think i

appropriate to certify the question to the SJC. See Nieve

___ ____

University of Puerto Rico, 7 F.3d 270, 274 (1st Cir. 1 ___________________________

(absent controlling state law precedent, federal appeals c

sitting in diversity has discretion to certify state

questions to highest state court); SJC Rule 1:03 (accep

certified questions that are claim-determinative and on

there is no SJC controlling precedent).

Kansallis raises another legal issue on which we also

guidance from the SJC. The district court charged the jury t

in order to find defendants vicariously liable based on

theory that Jones's conduct was within the scope of

partnership, it would have to find, inter alia, that Jones ac __________

at least in part, with the intent to benefit the partners

This seems to be the rule as articulated in Wang Laboratorie_______________

Business Incentives, 398 Mass. 854, 859, 501 N.E.2d 1163,___________________

(1986). However, there is no motivation requirement in the


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articulated by New England Acceptance v. American Manufactu ______________________ _________________

____________________

5 See Mass. Gen. L. ch. 108A, 13 ("Where, by___

wrongful act or omission of any partner . . . with the autho of his co-partners, loss or injury is caused to any [ partner], or any penalty is incurred, the partnership is li therefor to the same extent as the partner so acting or omit to act.").

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Ins. Co., 373 Mass. 594, 597, 368 N.E.2d 1385 (1977) (adoptin________

its own the appeals court holding that principals may

vicariously liable for the acts of their agents "regardles

the fact that the [agents] were acting entirely for their

purposes"). In light of this apparent conflict, and since

did not directly cite to or overrule New England Acceptance______________________

also consider it wise to refer this question to the SJC.

In certifying these questions, we wish to make it clear

we would welcome any other direction from the SJC that it

useful in resolving these issues.

Conclusion __________


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For these reasons, we affirm the various fact-findin

the district judge and jury and certify two questions of la

the Supreme Judicial Court of Massachusetts.

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UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

____________________

No. 93-2381


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Plaintiff, Appellant,

v.


Defendants, Appellees.

____________________

No. 94-1010


Plaintiff, Appellee,

v.


Defendants, Appellants.

____________________

CERTIFICATION

____________________

For the reasons discussed in our opinion in this c

Kansallis Finance, Ltd. v. Daniel J. Fern, Richard C. Ander ________________________ ________________________________

Robert J. Donahue, and Charles M. Sabatt, Nos. 93-2381 an

__________________________________________

1010, we certify the following questions to the Massachus

Supreme Judicial Court:

1. Under Massachusetts law, to find that a certain act

within the scope of a partnership for the purpose of applyin


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doctrine of vicarious liability, must a plaintiff show, i

alia, that the act was taken at least in part with the inten____

serve or benefit the partnership?

2. May defendants be found vicariously liable for author

conduct by their partner that violated Mass. Gen. L. ch.

even if they were entirely unaware of and uninvolved with

conduct?

In asking these questions, we would, of course, also wel

any discussion of relevant Massachusetts law the Supreme Judi

Court deems appropriate. The Clerk of the Court is to for

under the Official Seal of this Court, the Certification,

opinion, and the briefs and appendix filed by the parties, to

Massachusetts Supreme Judicial Court.

United States Court of App for the First Circuit

By:_______________

Bruce M. Selya Circuit Judge


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kansallis v. fern, 1st cir. (1994)

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